Combined Property Industries (Qld) Pty Ltd v Pullenvale Estates Pty Ltd [2001] QSC 76

[2] The respondent's claim arises out of the building contract between the respondent as contractor and the applicant as principal in respect of the construction of commercial premises. Although the claim as filed was for the sum of $647,306.73 the respondent's solicitor, Mr Winter, in his affidavit filed on 12 March 2001, states that the respondent's claim stands at $453,243.50 and that in particulars the applicant has admitted variations with a value of $68,778. Mr Winter also seeks to rely on the value of additional variations that the architect for the project states are valid of $118,360, but the applicant disputes the reliability of that assessment, as the architect did not seek the input of the applicant before making the assessment of the validity and value of these variations.

[3] The respondent's claim was filed on 20 June 2000. A defence was filed on 31 July 2000. By consent of the parties it was ordered on 14 December 2000 that the applicant provide the respondent with the particulars requested by letter dated 3 August 2000 on or before 21 December 2000. Those particulars were provided. Further particulars were then requested of matters pleaded in the applicant's further and better particulars. Most of those particulars were provided by the applicant on 12 March 2001 with the applicant's anticipating that it would be in a position to provide the balance of the particulars within a week. An amended defence was filed on 21 February 2001.

[4] By letter dated 28 December 2000 the applicant's solicitors made a request for the respondent to provide security for costs. The amount requested was the sum of $260,000. The applicant's solicitors had concluded from company searches and real property searches that the respondent was not the owner of any substantial assets in Queensland and the applicant had received information that the respondent was no longer trading. The company search of the respondent reveals two registered fixed and floating charges in favour of Westpac Banking Corporation. The respondent is not registered as the owner of any real property.

[5] The respondent's solicitors' letter in response dated 29 January 2001 rejected the request for security of costs as being unnecessary on the basis that the respondent was a licensed builder and in compliance with the licensing regime of the Queensland Building Services Authority ("Authority") had been certified in the last 2 months as having assets in excess of the requirements for the class of licence that it held. Further information was provided in the respondent's solicitors' letter dated 27 February 2001 that the respondent had satisfied the Authority's mandatory licensing requirements for an annual turnover of up to $10 million.

[6] By letter dated 2 March 2001 the applicant's solicitors requested confirmation from the respondent's solicitors that the respondent was continuing to trade and trade profitably and details of assets owned by the respondent against which the applicant would be able to levy execution for its costs in the event that it were successful in the action.

[7] The respondent's solicitors' responded by letter dated 7 March 2001. They advised that the comments that the respondent may no longer be trading were untrue. The respondent's solicitors maintained that satisfaction by the respondent of the Authority's requirements to enable it to have an allowable annual turnover of $10 million indicated that it had sufficient means to meet any order for costs in the event that the applicant were successful in the action.

[8] The affidavits filed in support of the respondent's opposition of the application for security for costs do not contain any financial information directly related to its current trading position and its current net assets. Its material shows that it is currently licensed by the Authority as a general builder and house builder. A copy of the independent review report, dated 1 December 2000, that the respondent submitted to the Authority to comply with its financial requirements for licensing is an exhibit to the affidavit of Mr Douglas George Robertson, one of the two directors of the respondent. That report was undertaken by accountant Mr Christopher Skelton who is a registered company auditor.

[9] For the purpose of the report he reviewed the financial information of the respondent for the year ended 30 June 2000. Based on his review of the financial information, which was not an audit Mr Skelton concluded that nothing had come to his attention which caused him to believe that the respondent had not met the financial requirements for licensing as prescribed by the Authority as at and for the year ended 30 June 2000. For an annual turnover up to $10 million, the Authority required net tangible assets of between $130,000 and $380,000. As part of the financial information, Mr Skelton was provided with deeds of assurance which had been entered into by Mr Robertson and the other director of the respondent, Mr Ronald Bruce Weston, to ensure that the net tangible asset requirements of the Authority were complied with.

[10] This report showed the net tangible assets of the respondent as $70,634 which presumably related to the end of the year under review, namely the year ended 30 June 2000. The total amount of the deeds of assurance is shown as $309,366 in the report of Mr Skelton. The actual annual turnover for the year of review is shown as $5,380,341. It therefore appears from that report of Mr Skelton that the value of the deeds of assurance were taken into account in determining that the respondent complied with the Authority's required amount of net tangible assets. Under the deed of assurance each covenantor covenants to pay the "Defined Amount" to the respondent upon a written demand by the respondent, if the respondent were to be wound up and that upon demand the covenantor's property will be charged with payment of the "Defined Amount".

[11] Mr Robertson deposes to the respondent currently having contracts on foot with a value in excess of $5 million and that it currently has a monthly turnover between $300,000 and $400,000. Mr Robertson denies the truth of the assertion made by the applicant's solicitors that the respondent may have ceased trading.

[12] Mr Weston's accountant has deposed to being satisfied that Mr Weston's net assets are in excess of $310,000. Companies associated with Mr Robertson and Mr Weston respectively have significant shareholdings in the respondent.

[13] It appears that a significant part of the respondent's claim relates to works alleged to have been undertaken by way of variations to the contract. In the amended defence the defendant alleges that the superintendent of works under the contract has considered 238 of the variations submitted for the sum of $129,231 and made preliminary assessment in the sum of $47,423.60, but has not issued a certificate pursuant to the contract in respect of that amount; that another 42 of the variations relate to work which the applicant alleges the respondent was required to carry out pursuant to the contract and cannot be claimed as variations; that another 49 of the variations are variations in respect of which it is alleged the respondent has failed to provide the superintendent of works with sufficient information to enable the superintendent of works to assess those alleged variations; and that another 28 of the variations relate to works carried out by the respondent at the request of a third party and were therefore outside the scope of the contract.

[14] The respondent's solicitor calculates the total number of variations claimed by the respondent to be 352, of which 183 have been agreed since the action was commenced. There is an allegation made by the contract manager for the respondent that there have been delays on the part of the superintendent of works under the contract in completing certification of variation and extension of time claims.

[15] The superintendent of works sent a letter to the respondent's solicitors dated 6 March 2001 stating that the claims had not been finalised, because the respondent had not provided sufficient information. That claim is denied by the respondent, although the respondent's solicitors by letter dated 8 March 2001 were expecting to complete that day a complete list of the information which the superintendent of works had requested.

[16] It is not possible on an application of this type to determine who, if any person, bears any fault for the failure at this stage for the superintendent of works to have dealt finally with all claims of the respondent for payment under the contract. The letter from the superintendent of works as late as 6 March 2001 indicates that not all claims had been processed at that date.

[17] Mr Robertson also states that the failure of the applicant to pay the amounts claimed by the respondent has had a negative impact on the financial position of the respondent, but no details are provided.

[18] The first issue on this application for security for costs is whether it appears by credible testimony that there is reason to believe that the respondent will be unable to pay the costs of the applicant, if the applicant were successful in the action: FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 156 FLR 116, 122. The applicant relied on the publicly available information relating to the respondent's financial position to raise the issue of security for costs and give the respondent an opportunity to provide the information within its control to allay the applicant's concern about the need for security. The respondent's approach to that has been to rely on its existing licences issued by the Authority and the financial requirements which had to be met by the respondent to obtain those licences.

[19] When the affidavits filed by both parties are analysed, the only material which is directly relevant to the current trading and asset position of the respondent is that disclosed by Mr Robertson as to its current turnover. The independent review report relates only to the financial year ended 30 June 2000 and there has been no attempt on behalf of the respondent to update that financial information. In any case the respondent's compliance with the Authority's licensing requirements was determined by Mr Skelton as at 30 June 2000 after taking into account the value of the deeds of assurance granted by the directors in favour of the respondent.

[20] The mere fact that the respondent satisfied the Authority's licensing requirements by reference to financial information relating to the year ended 30 June 2000 does not displace the need for the respondent to provide information relating to its trading position and net asset position at a time proximate to that when security for costs is sought.

[21] In light of the approach taken by the respondent to the applicant's request for information directly relevant to the security for costs application having regard to the publicly available information relating to the respondent's financial position, I conclude that there is reason to believe that the respondent will be unable to pay the costs of the applicant, if the applicant were successful in the action.

[22] It is then a matter of discretion as to whether security for costs should be ordered. Relevant matters include:

(b) to the extent the issue can be considered when the action is at a preliminary stage, the respondent has some prospect of success to some degree;

(c) although there are admissions by the applicant in respect of some parts of the respondent's claim, there remains a significant sum in issue at this stage of the proceedings;

(d) there is no evidence that the respondent's proceedings will be frustrated, if security were ordered;

(e) it is not possible to conclude that it is likely that the respondent's want of means has been brought about by the conduct of the applicant, when it is not possible on an interlocutory application to resolve the validity of the respondent's claims;

(f) the directors of the respondent stand to gain financially, if the respondent's action were successful,

(g) the respondent has not shown that those who will benefit from the action are impecunious: Bell Wholesale Co Ltd v Gates Export Corporation [1984] FCA 34; (1984) 2 FCR 1, 4.

[23] On balance, these matters favour ordering security for costs. The respondent submits that failure to apply for security for costs at an earlier stage in the action must operate against the applicant. In particular, the respondent submits that providing the further and better particulars in December 2000 meant that the applicant has waived its right to security for costs.

[24] This action has not moved speedily, primarily due to the delays on the applicant's part in providing the particulars. Progress of the action has no doubt also been affected by the fact that the respondent's claims have not all been processed by the superintendent of works.

[25] At the time of the hearing of this application, the applicant was still in the throes of finalising its further and better particulars. Notwithstanding the delay since the action commenced on 20 June 2000, the action still remains at the pleading stage. The applicant did not give up its right to seek security for costs by providing the further and better particulars. To the extent that there have been delays on the applicant's part in seeking the security for costs, I do not consider that factor outweighs the balance of the others in favour of the ordering of security for costs.

[26] During the course of the hearing I indicated that I considered that the applicant's estimate of costs was excessive. I also indicated that I considered it appropriate that security should be provided to the first day of trial only. Having regard to the stage at which this action has reached and the likelihood that issues will be further refined, it is premature to endeavour to estimate the length of the trial. Security for costs should be provided in respect of steps taking place only from this time forward to the first day of trial. Ms Buxton of Counsel revised the amount sought by way of security to the sum of $110,000 to take account of the costs being assessed on a standard basis and to the first day of trial. I indicated during the hearing of the application that I considered the sum of $40,000 was an appropriate sum for such security to the first day of trial. After reviewing the material, I remain of that view.

[27] During the course of the hearing Mr Schulte of Counsel on behalf of the respondent indicated that if I decided that security should be provided by the respondent, the directors were prepared to give a joint and several guarantee in relation to security for costs in the sum of $40,000.

1. The respondent give security for costs in the sum of $40,000.

1. That such security can be satisfied at the respondent's election by Douglas George Robertson and Ronald Bruce Weston providing a joint and several guarantee to the applicant for security for costs in the sum of $40,000 in such form as the applicant and respondent agree upon or, failing agreement, in the form satisfactory to the Registrar.
2. The proceeding is stayed until the order for security for costs has been complied with.

[29] The applicant seeks an order for its costs of this application. One factor which militates against such order is the excessive amount in respect of which security was sought at the outset. On the other hand, the respondent merely opposed the giving of the security for costs without suggesting that it provide security in a more modest amount. On balance, because the applicant has succeeded, I am inclined to order that the respondent pay the applicant's costs of the application, but I will hear submissions from the parties on the appropriate costs order.